Sierra Leone Business: We are successful because we diversify our investments –RCBank MD

Rokel Commercial Bank’s (RCB) Walton Ekundayo Gilpin, has been speaking about the 51% government controlled bank which he manages.
In this interview with Zainab Iyamide Joaque, he opens up on the challenges and opportunities in the Sierra Leonean banking sector and the role and strategy of RCB vis-à-vis his own role in leading the bank through a difficult operating environment.

Awoko: The Bank recently published its Financial Statement, can you please dig deeper into its capital adequacy, liquidity position, assets quality, corporate governance and earnings performance?MD Gilpin: Thank you very much we are deeply honoured, our position as it were has been one that in the most recent past, has staggered upon difficulties due to massive positioning for bad debt, (and) due to the inability to diversify our investment portfolio. Now we are in a state wherein we have massively overcome the hurdles by diversifying our investment and strengthening our asset quality by provisioning fully and recapitalizing.
As it were as at end 2017, we were able to recapitalize way above the minimum requirements which is 15%. We are around 23% capital adequacy. As far as our liquidity department is concerned we are way above.
We invest in alternative possibilities that is interbank investment and lending, government treasury bills and also financial intermediaries through loans and advances.
As far as our asset quality is concerned it has really improved. Right now we have provisions for all that and provisioning is mandated through, after a loan has been in default for over 18 months and you have made over significant efforts to reclaim it and the loan is not repayable, then you make provision for it to write it off.
Writing it off doesn’t mean you have given the debtor the green light to go, as it still remains in our books, but we don’t want it in our books as a non-performing toxic asset. The fact remains that if we can’t provision for it … it will weigh down the sector itself.
The non-performing loans (NPLs) in this bank rose up to 70%, the average in sub-Saharan Africa (SSA) is 6%, it was high in Ghana about 13%. For us to have that as a bank, was for me the highest I have seen in the world and places I have been to.
So to come back home and see a NPL ratio of that magnitude is very alarming, so it does makes sense for the Central Bank to give us the directive to write off after fulfilling the provisions of this debt, and also encourage us to go after the debtors to reclaim the money back. By then whatever we get from the debtors goes to our capital as the law makes provision for that.
As far as our critical indicators are concerned, our main operating income, profitability analysis … we are profitable and our operating income as per percentage of our asset base is also good. Our assets quality has improved and also our NPL is approximately 25% but provisions have been made for these loans; but we will need the go ahead to write them off.Awoko: what kind of policy reforms were initiated in terms of fiscal, monetary and structural to achieve the issues highlighted?MD Gilpin: Thank you, profit levels continue to rise and exceed estimates, as at end of December 2017 pretax profit stood at about Le60billion, which is 625% higher than the estimated figure of Le 8billion in 2018, the profit levels begin to rise upwards and they exceed our expectations.
The estimate of Le20billion for the year has been surpassed quite significantly at the end of March 2018 we were about Le23billion and at the end of July we are at about Le55billion profit before tax. We are expecting by the end of the year to reach Le100billion, this one is fixed because we have already made the investments and we are confident that we will get there.
Notwithstanding the assets turnover and profit against income ratios which we know are growing, the bank is taking advantage of its high liquidity position to generate alternative income. By so doing we have invested in mobile banking which we called ‘Simkopor’, which we will use as another avenue for income generation because it is going to have a commission on transactions and will be rolled out significantly with a target of 15,000 signups in Freetown within the next six weeks.
We also plan to expand the banks deposit base, because about 61% of our operational income is from government securities, we are looking at financial intermediation through advances, overseas investment, improving on our mobile banking App and interbank lending.
You talk about fiscal, is basically tax on revenue. In other words cut down on your expenses and you increase your possibility on income, and cutting down on our expenses we reviewed our contracts, stationary usage, for example we used to print our statements on matrix and the document is bulky, we have moved now to laser printing which is much more less expensive, control the electricity, basic supplies, cut down on fuel usage, and become more prudential in using our things.
On the other side which is the revenue side government will either increase taxation or reduce their spending, on our side which is the revenue, basically we are seeking alternative investment, that is when we disinvested in foreign investment and we reinvest, and that foreign investment could just be one percent taking imported inflation into consideration, if we get about 19% from government in one year I don’t think the currency depreciation and inflation will erode that 19%. To me it’s one percent equivalent so we think that is even a better investment wherein we tie these investments to fix rates and we will get the money back in the same dollar amount and with more interest added on it.
In other words we improve our treasury management stance and we are looking for opportunities even within the economy wherein we can lend to other banks and some overnight profits.
We are looking at our alternative investment positions, government prudential requirements, making sure that we meet our review requirements and at the same time finding alternative ways to add income.
What if the rate goes up or down and what if government decides to opt out of treasury bonds? We need to think what if the appetite is discontinued, then we have to give another target to our branches and go into the market, we have to look for alternative investment in-country and outside, but we have to operate within the stipulations of the Central Bank.
Our Local Liquid Assets Ratio (LLAR), which means we have to keep most of our liquid assets here as we are looking for any investment opportunity. For operational and profitability efficiency we have our yardstick and our bench marks, so we monitor them on a quarterly basis.
We have increased branch briefings and meetings, so now our staff are more aware of our target lines and how to approach it in a bid to increase our income.
The fiscal is cutting down on cost and monetary is about interest rates, exchange rates and inflation, with those things we do not have much say on that so what we can do is we have to compete on our base rate, the base rate cannot be skewed as the more profit you have the higher the base rate and that is what we use to price our products.
We are the second most profitable bank as at March, so our base rate is high. So we have to sit and discuss with the authorities to see how we can get a competitive base rate.
Another area we look at is our internal policies which guides the operation of the institution. We always upgrade, for example, we need to make sure that our risk management, operation policy, assets management is sound, and these are the things that guide our bank. In doing so we have to strengthen our overall corporate strategic
plan.Awoko: On your financial inclusion drive regarding your innovative product, in the short and medium term do you have a specific number of customers that you are targeting?
Sierra Leone Business: We are successful because we diversify our investments –RCBank MDMD Gilpin: Going forward we are also looking at how we can respond to the banking needs of our people, we are a government bank and our interest is to pay government dividend and increase the tax that we pay to government and pay our shareholders dividend but also our responsibility for the country to ensure that we reach the unbanked population by
aggressively introducing our mobile banking App by going into the rural areas, open account and get these individuals to start their transactions.
Then we are making money from our commissions, increasing our revenue and by so doing we have more and more people getting involved in the banking sector in the country. For the Simkorpor we are looking at 15,000 for Freetown.Awoko: Why just Freetown?MD Gilpin: You have to start somewhere, if we spread out at once we will not be able to do it well, we want to focus and get lessons from starting in one area from August towards mid-September we will be introducing it in Freetown.
We then move to the south, it will take another six weeks there, the east and north and then we spread out to more rural areas, once we have increased our merchants, agents base and then those are equipped to going out and getting more customers, so our target is 15,000 and more which is quite huge.
This is a very herculean task for us, as our staff compliment is pretty thin to do this so we may have to recruit temps or get interns, but we will have to have a plan, our plan is really to work with the government in line with the governments face towards the New Direction but it is really to ensure that the policies of government are realized.Awoko: What are the constraints ahead?MD Gilpin: One constraint is the lack of economic diversification which means there is that much you can invest, small economy and lack of ideas, when you have the inability to expand and you have limited chances you have to be innovative.
Sometimes liquidity is high because investment opportunities are not there, those with big time loans we sometimes cannot meet their demands and that calls for what we call syndication, wherein more than two three banks can raise funds to meet a customer’s demand.
So there has to be a way where we can look into the entire sector, looking at government policies, regulations in the sector, as anytime there is a new innovation – regulation has to guide that innovation. So I will say we have to work closely with government on that.Awoko: Thank you for taking the time to talk to meMD Gilpin: You’re welcome
By Zainab Iyamide Joaque
Monday August 13, 2018.